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Holy Cross Hospital agrees to $9.1 million settlement in church-plan challenge

Holy Cross Hospital has agreed to pay $4 million to participants of a defined benefit plan being terminated to settle a lawsuit challenging its church-plan status and to distribute $5.1 million in remaining plan assets owed to nearly 2,000 participants.

The settlement agreement was reached March 1 and preliminarily approved March 7. A final hearing on approval is scheduled for June 29.

Holy Cross Hospital is now part of Sinai Health System, Chicago, which denied the allegations as part of the settlement agreement and defended the pension fund's church-plan status. Spokeswoman Dianne Hunter confirmed the settlement. Ms. Hunter said the plan will be terminated after the settlement is approved.

Plan termination was scheduled as a two-step distribution, with the first distribution in December 2015; the second distribution, planned for the third quarter of 2016, was held up by the lawsuit, Ms. Hunter said. “The plan exists separate and apart from the hospital, is not controlled by the hospital and the plan assets being distributed are not the hospital's assets,” Ms. Hunter said.

The lawsuit filed June 7 in U.S. District Court in Chicago alleged that Holy Cross Hospital transferred plan sponsorship and liabilities to an order of nuns, Sisters of Saint Casimir, the day before completing the merger with Sinai Health System in 2012. At the time, the pension fund had $31 million in liabilities after Holy Cross stopped making contributions in 2007, according to the lawsuit.

When Sisters of Saint Casimir announced two years later that the plan would be terminated, participants were informed that lump-sum benefits would be calculated using a termination discount rate of 13.5%, instead of the 4% rate applied under the Employee Retirement Income Security Act, causing some participants to receive reduced benefits, according to the lawsuit.

The suit also claimed the pension plan complied with ERISA for 19 years, until winning approval from the IRS in 1993 to qualify as a church plan retroactively to March 1974. Plaintiffs asked for joint and several liability for Holy Cross and Sinai Health System, payment of the unfunded liabilities plus interest, civil penalties per day per plaintiff, court costs and appointment of an independent fiduciary.

The U.S. Supreme Court will hear arguments March 27 in a case consolidating three church-plan cases brought by plan sponsors Dignity Health, Advocate Health Care and Saint Peter's Healthcare System, which are appealing lower court decisions that they are bound by ERISA. The Department of the Treasury, IRS, Department of Labor and Pension Benefit Guaranty Corp. joined an amicus brief urging the Supreme Court to overturn lower court rulings that church-affiliated defined benefit plan sponsors must be covered by ERISA.